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You are here: Home » 2013 » February

Return of the Equity Seller

One… That’s how many “regular” equity sellers there were one month a few years back. I can’t remember the exact date, but I’m guessing it was somewhere around 2007 or 2008 when we were deep in the throes of the “mortgage meltdown.” I was compiling some market data for a report and was shocked to see that that month only ONE of the closed escrows in Brentwood was a “regular” seller. All the rest were either short sale, or bank-owned, or an investor “flipping” the property. Since that point, the vast majority of sales continued to be distressed sales of some kind. Most months they hovered around 70-90% of the sales. And when you saw a home for sale that wasn’t a distressed sale, it was usually just over-priced because they were trying to get what they owed on it.

Well, we’ve had QUITE the turnaround recently. Last year, 61% of the sold homes in our area were distressed sales of some kind. And so far in 2013, only 46% were distressed sales. When you look at the active homes for sale, only 33% of them are distressed sales. And many of the actives are legitimate equity sellers, as in they aren’t just over-priced to avoid being a short sale. I don’t think we are going to see a wave of bank-owned homes like we kept fearing. I do think we’ll have significant short sales for a while, but less than in the past.

There are many contributing factors to this turnaround. It’s mostly due to the fact that there have been massive foreclosures and short sales the past 5-6 years, and they aren’t making the “crazy” loans anymore. So if you think of any assembly line in a factory, they are going out the output side, but very few are going in the input side. Most of the buyers that bought homes the last few years can actually afford their payment, and it is a 30 year fixed rate loan, or the buyer paid cash. On top of that, our market “bottomed” about the middle of last year, and prices are up 20-30%+ since then. This is helping those people that were just a little upside-down get back to where they have a little equity.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Update on Ca Mortg Forgiveness

When you have a foreclosure, deed-in-lieu of foreclosure, loan mod with principal reduction or a short sale, it’s possible that you will have “phantom income” in the form of forgiven debt. The Federal government extended the Mortgage Forgiveness Debt Relief Act through the end of 2013. So if your loan was used to buy, build or improve a principal residence, or you are insolvent or have filed for bankruptcy, you probably won’t owe Federal tax. You may owe California tax because California’s Mortgage Forgiveness Act expired 12/31/2013. Regardless of either the Federal or State Acts, if you are solvent and you pulled cash out of a property, you may owe phantom income tax.

However, there is possible good news on two fronts. First, SB 30 (Calderon, D-Montebello) was recently introduced as a CA Senate bill, which will make California’s law like the Federal law again if it passes. I would say odds are better than 50% that it will pass.

The other good news is hard to explain in the remaining space because it’s a complicated legal argument, so I can only summarize. Back in 2011 California law changed to where if a lender agrees to a short sale, in most cases, they are forbidden from pursuing the borrower for the deficiency. So the argument goes that when you do a short sale, the loan becomes equivalent to a “purchase-money loan,” which means the lender’s only option in the event of default is to pursue the property, not the borrower. That means there WAS no “forgiveness of debt” and therefore there should be NO 1099. So if this argument holds up, that COULD mean that ALL short sales in California for 1-4 unit properties are free from ANY phantom income taxes for California. So this is one more reason to consider a short sale if you are facing difficulties paying your mortgage instead of letting it foreclose because it MAY have favorable tax treatment, depending on your situation. I AM NOT A TAX OR LEGAL EXPERT. I’VE JUST DONE SOME RESEARCH ONLINE. CHECK WITH TAX AND LEGAL EXPERTS FOR YOUR SITUATION. THIS IS A CONFUSING AREA OF LAW AND THERE ARE DIFFERENCES IF PROPERTY IS A RESIDENCE, RENTAL OR LAND BEYOND WHAT I HAVE SPACE TO EXPLAIN.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

FHA – PMI – Update

PMI stands for Private Mortgage Insurance. If you are looking to buy a home, and you are putting less than 20% down, you will likely have to pay PMI. The purpose is to insure your lender in the event that you don’t pay them back

A few years ago lenders got creative and they would make you one loan at 80% of the appraised value of the property, thereby avoiding PMI, but then they’d make you another loan at 10% of the value, so you’d only have to come up with 10% down. The problem is that the interest rate on this second loan was often quite high, but it was still cheaper than paying PMI. But then a few years ago, the tax laws changed to where PMI was tax-deductible, so then the pendulum swung back in favor of PMI, and the 80/10/10 loans fell out of favor. But recently I learned that PMI is not tax-deductible for everyone. There are income phase-outs starting at $50K per year for single-filers and $100K per year for joint filers. So this makes the PMI look less attractive for many home buyers.

Then I just heard that the rates for PMI for FHA loans are about to go up, again. And that starting in June, the rules for when PMI come off your FHA loan are changing, again. Many years ago, when you had 20% equity in your home, the PMI would come off automatically. But then some lenders said that they wouldn’t count appreciation any longer in that calculation. You had to have paid your loan DOWN by 20% since it started, no matter how much your home appraised for. But now the new rules may be that PMI NEVER comes off your FHA loan…  So the only way to get it off is to go get a whole NEW loan and payoff the old one. So if rates go up in the future, you may be STUCK in your FHA loan with PMI.

So if you are looking to buy a home, and you have less than 20% down, be sure to ask your lender about ALL your options and weigh them all carefully. And read ALL the fine print about the PMI!

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

New Rental Law

I’ve heard a lot of heart-breaking stories the last few years as a result of the real estate meltdown. Some of them were just “bad luck” stories of people losing their jobs, divorce, health, issues, etc. But then there is another whole category of stories I hear that were caused by someone’s actions of trying to take advantage of someone else. Some of the worst ones are when someone rents out a property, and the landlord says they’ll discount the rent substantially if the tenant will pay 2-3 months ahead of time. The tenant is ecstatic, until they move in and find out the home gets foreclosed on soon after. There is a new law in California where the landlord has to disclose if foreclosure has begun on the property. So IF the landlord complies with this new law, that will help protect tenants from the situation I describe above. However, if someone was going to lie to you in order to take your money, I don’t hold out a lot of hope that they’ll follow this disclosure law. Best to do your own research on any property you are thinking of renting and find out if the foreclosure process has been started. Another good idea is to ask your potential landlord to see a copy of their mortgage statement. See if the payments are current, and also see if their payment is significantly more than what you will be paying for rent, which would be a big red flag!

Here is the verbiage that is mandated by this new law: “The foreclosure process has begun on this property, and this property may be sold at foreclosure. If you rent this property, and a foreclosure sale occurs, the sale may affect your right to continue to live in this property in the future. Your tenancy may continue after the sale. The new owner must honor the lease unless the new owner will occupy the property as a primary residence, or in other limited circumstances. Also, in some cases and in some cities with a ‘just cause for eviction’ law, you may not have to move at all. In order for the new owner to evict you, the new owner must provide you with at least 90 days’ written eviction notice in most cases.”

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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